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The Need to Engage China

This article originally appeared in The Asian Wall Street Journal on October 9, 2002.

Recent reports by the U.S.-China Security Review Commission and the Pentagon show a deep suspicion in Washington that China will become an increasing threat to American global economic and military power. It would be a major mistake, however, to backslide from a policy of engagement into one of containment and for the U.S. to treat China as an adversary rather than as a normal great power. Managing relations with China, and avoiding the extremes of confrontation or wishful thinking, will be one of the key challenges facing American policy makers in the next decade.

China’s economy has expanded precisely because Beijing has allowed greater economic freedom. The rapid growth of trade has increased per capita incomes in China and provided the Chinese people with new opportunities. In 1978 the total value of China’s imports and exports amounted to only $20.6 billion. By the end of 2001, their value had increased to $509.8 billion. China’s desire to compete in world markets is good for consumers and poses no threat to American security.

Protectionists in the U.S. who point to large and growing trade deficits with China and to increased American investment in China should not be allowed to block trade liberalization by injudicious use of national security and human-rights arguments. Further liberalization of U.S.-China trade is a winwin strategy and can play an important role in promoting peace and prosperity. Containment would do just the opposite.

The commission’s July report to the U.S. Congress, “The National Security Implications of the Economic Relationship between the United States and China,” offered more than 40 recommendations, many of which implicitly assume that China is a threat to American economic and military power. Congress should not enact those recommendations that endanger a policy of engagement with China. In particular, it should strongly oppose the commission’s proposal to create a “federally mandated corporate reporting system.” That system is designed to force U.S. firms doing business in China to provide extensive data on all their business activities, even those that have no significant impact on national security.

Under the proposal, American firms investing in China would be strictly monitored and have to account for their investments, and how these might affect jobs in the U.S. Enacting such a recommendation would impose a heavy burden on U.S. firms and put them at a competitive disadvantage in the Chinese market. Reduced investment in that market would have a negative impact on the American market as subsidiaries in China imported fewer U.S.-made components.

The commission’s report also supports the renewal of the Super 301 provision in U.S. trade law and asks the Bush administration to “identify and report on other tools that would be most effective in opening China’s market to U.S. exports if China fails to comply with its WTO commitments.” Such a 10/9/2002 http://nrstg1s.djnr.com/cgi-bin/DJInteractive?cgi=WEB_ST_WC_STORY&GJANum=789207238&page=webclip/story&… step would be unwise. China should be given ample time to meet its obligations to the World Trade Organization, and to the U.S. under the 1999 bilateral agreement on market access.

America should work through the WTO dispute-resolution mechanism and target specific cases that are significant rather than try to prosecute every infraction of the trade agreement. It is in Washington and Beijing’s interests to open China’s markets and, at a time when Beijing is undergoing important leadership changes, China’s reformers need congressional support.

Likewise, Congress should not follow the commission’s advice to “amend the CVD [countervailing duty] law to specifically state that it applies to NMEs [nonmarket economies].” The purpose of that recommendation is “to protect U.S. industries from unfair competition from the imports of these economies.” In fact, China is unfairly treated by the use of NME methodology in determining production costs in antidumping cases. The methodology is grossly defective and prevents China from realizing its comparative cost advantage. Moreover, China has a higher economic freedom rating than Russia, yet the European Union has dropped the NME label for Russia. America should do the same for China; U.S. consumers would gain as a result.

Protectionist interests should not be allowed to dominate future U.S.-China relations, and the commission’s report sends the wrong signal in this respect. Instead of seeing China as a threat, there is a need to cooperate with China in ways that are mutually beneficial. As Joseph Borich, executive director of the Washington State China Relations Council, noted: “The draconian system the commission would create will do little or nothing to promote the long-term security of the U.S. Conversely, it would undermine shared Sino-U.S. interests, create a whole new layer of federal bureaucracy and bureaucratic requirements to bedevil U.S. business and lay the basis for a selffulfilling prophecy that could actually diminish our security.”

Continued trade liberalization and engagement on a number of fronts, including a more liberal visa policy that permits Chinese students to study in the U.S., especially in the fields of law, economics and the humanities, will have positive long-term benefits. Visa procedures should be re-examined. So long as individuals pose no threat to America’s national security, they should be encouraged to experience its free society firsthand. Free trade can help normalize China and transform it into a modern economy and a civil society under the rule of law. Backsliding into protectionism cannot.

Both the commission’s report and another from the Pentagon, which was also released in July, imply that as China grows wealthier its military spending will increase to the detriment of the U.S. and its Asian allies. While that danger cannot be overlooked, the probability is small compared to the likelihood that, as the nonstate sector in China grows, the Chinese Communist Party will lose power and political reform will ensue.

The dark side of the Chinese communist state is disturbing and must not be ignored. But that unsavory record should not be allowed to hide the progress that the Chinese people have made since economic reforms began in 1978. Increased trade has promoted the growth of markets relative to state planning, given millions of people new opportunities, and substantially raised living standards, especially in the coastal cities where economic liberalization has advanced the furthest. The primary goal of U.S. foreign policy should be to further the liberalization trend in China by maintaining a cooperative, constructive relationship. The most direct means for achieving that goal is through closer trade ties.